Why do people release equity from their homes?

People are putting money back into their houses to age proof their properties so they can stay in them for longer

A set of building and maintenance tools like screwdrivers and a wrench on a concrete background

Growing numbers of people are unlocking some of their property wealth to pay off debts, so that they can enjoy a retirement free from financial worries.

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Latest figures from the Equity Release Council, the trade body for the equity release sector, show that more than £1 billion of equity was released from homes in the last three months of 2019, making it one of the busiest periods on record.

According to research by over-55s specialist adviser Key, up to half (49%) of all equity release customers used the money to pay off or consolidate some form of debt. One in five (20%) used it to clear outstanding mortgages, often interest-only mortgages, whilst 29% chose to pay off credit cards and personal loans.

Separate customer data from LV= shows that 27% of its equity release customers in 2019 used some of the property wealth they unlocked to clear their mortgage, loans or debts compared to 15% in 2016.

Georgina Oxton, strategic sales manager at LV=, said: “For customers with interest-only mortgages having no means of repaying them, equity release would be one option as people have the added security of still living in their home until they die or go into long-term care.”

According to a survey of equity release-qualified financial advisers carried out by Canada Life, 69% of advisers expect that homeowners currently retiring with higher levels of debt than before will be the second biggest driver of equity release demand in 2020, as they take action to pay it off. This is more than double the percentage of advisers who chose this option in 2018 (31%).

Alice Watson, spokesman for Canada Life, said: “With more people expected to use equity release to help manage their finances, the importance of financial advice is brought to the forefront. Using lifetime mortgages to reduce debt may not be the most appropriate solution for everyone. Getting quality, independent advice can help consumers make the right decision, based on their own individual needs.”

Other uses for equity release

Paying off debts is far from the only reason people choose to release equity from their homes.

Around two out of three people (64%) used some or all of the money they released last year to improve their homes or gardens, according to Key. Many of these are likely to be ‘age proofing’ their properties so they can stay in them for longer.

Will Hale, CEO at Key said: “Equity release isn’t a single use financial product, many customers use funds released for more than one reason.”

Almost a third (32%) used some of the money to fund holidays, with a similar number choosing to use their property wealth to help family.  LV=’s figures show that 16% of its equity release customers unlocked property wealth to help friends and family in 2019, up from 8% the previous year.

Ms Oxton said: “Helping grandchildren with deposits for their first home or the costs of higher education are just some of the reasons why an increasing number of our customers use equity release to help friends and families.”

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